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from Expert Zone:

The reform club

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

That custodian of the English language, the Oxford English Dictionary, describes a bubble as “anything fragile, unsubstantial, empty or worthless; a deceptive show”. Could this description apply to the current frenzy for “reform” that is seemingly sweeping the global economy? The answer is “yes, in part”. While there are some genuine attempts at reform, market expectations for reform will inevitably be disappointed in some parts of the world.

The global financial crisis has prompted politicians to advocate economic reform in two ways. First, the crisis demonstrated that the status quo needed to be changed -- and in many cases that change required sizeable structural change. Second, as the structure of the world economy has changed (lower global capital flows, slower global trade, etc.) so economies have had to adapt the way that their economies are structured.

The inevitable reaction to this is that politicians are scrambling over each other to advocate reform. Reform is seen as a break with the past, and helps governments avoid being tainted with past errors. Advocating reform is a way of containing popular anger about historical mistakes. Looking at the focal points of fiscal, labour market and financial system structures, almost three quarters of the world economy as measured by GDP is assessed as needing some kind of reform in one or another of these areas.

In some cases, the need for reform is seen as being very broad based. Japan’s need for fiscal and labour market reform is at least recognised (though perhaps not put into practice) by Abenomics. The Euro area’s need for a credible change in its banking system structure has been acknowledged by giving the central bank the power to regulate banks, though this is still seen as incomplete.

from Expert Zone:

Reflections from Davos

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

It’s been an exciting week at Davos. The annual meeting of the World Economic Forum this year was refreshingly different from previous editions. There is a general sense of optimism.

Although the effects of the recent crisis linger on, businesses and business leaders are acknowledging that we are seeing signs of recovery. In Davos, I had conversations with business leaders, heads of industry bodies, as also members of the academic and media fraternity. Each of these conversations resonated optimism.

from MacroScope:

The Bank of Canada is probably not ready to seriously consider cutting rates — yet

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With all signs showing the Canadian economic miracle is fading, the Bank of Canada is understandably starting to sound more dovish. The Canadian dollar has got a whiff of that, down about 10 percent from where it was this time last year.

But that doesn't mean Governor Stephen Poloz is ready to signal on Wednesday that his rate shears are about to get hauled out of the shed.

from Expert Zone:

The fear of “L”

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(This piece comes from Project Syndicate. The opinions expressed are the author's own)

For the last few years, economists have been running through the alphabet to describe the shape of the long-awaited recovery -- starting with an optimistic V, proceeding to a more downbeat U, and ending up at a despairing W. But now a deeper anxiety is beginning to stalk the profession: the fear of what I call an "L-shaped" recovery.

from MacroScope:

Time to taper the taper talk?

It's been three months since the Federal Reserve first hinted that it's going to have to ease off on its extraordinary monetary stimulus, but financial markets are still not settled on the matter.

But while volatility is on the rise - surely partly a result of thinned trading volumes during the peak summer vacation season - the consensus around when the Fed will start cutting back hasn't budged.

from MacroScope:

Not again, please! Brazil and India more vulnerable now to another crisis

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After bad economic news from Germany, China and the United States over the past few weeks, here are two more. Brazil and India, two of the world's largest emerging economies, are increasingly vulnerable to another crisis or to the eventual end of the ultra-loose monetary policies in developed economies after five years of a severe global slowdown.

Weak demand for Brazil's exports and the voracious appetite of local consumers for imported goods widened the country's current account deficit to 2.93 percent of GDP in the 12 months through March, the widest gap in nearly eleven years. In dollar terms, that amounts to $67 billion.

from Global Investing:

Making an Impact may be new good

If the pure pursuit of greed is no longer good in the post-crisis world, what defines the new "good"?

That's when you start to consider "Impact Investing", a type of investment that pursues measurable social and environmental impacts alongside a financial return.  According to a report prepared for the Rockefeller Foundation, approximately 2,200 impact investments worth $4.4 billion were made in 2011.

from The Great Debate:

Stubborn national politics drag down the global economy

Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity.  They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen. After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.

Only now are there signs that the long-overdue shift in national macro-economic policies may be taking place. The new Japanese government is backing up a "minimum inflation target" with a multi-billion-dollar stimulus designed to create 600,000 jobs. In what some call the “reverse Volcker moment,” Ben Bernanke has become the first head of a central bank for decades to announce he will target a 6 percent level of unemployment alongside his inflation objective. And the new governor of the Bank of England, Mark Carney, has told us that "when policy rates are stuck at the zero lower bound, there could not be a more favorable case for Nominal GDP targeting.” Side by side with this shift in policy, in every area but the Euro, there is also policy progress in China. It may look from the outside as if November’s Communist Party Congress simply re-announced their all-too-familiar but undelivered wish to re-balance the economy from exports to domestic consumption, but this time the promise has been accompanied by a time-specific commitment: to double average domestic income per head by 2020.

from Global Investing:

Weekly Radar: From fiscal cliff to fiscal tiff…

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The new year starts with a markets 'whoosh', thanks to some form of detente in DC -- though this one was already motoring in 2012. The New Year’s Eve rally was the biggest final day gain in the S&P500 since 1974, for what it's worth.  And for investment almanac obsessives, Wednesday's 2%+ gains are a good start to so-called “five-day-rule”, where net gains in the S&P500 over the first five trading days of the year have led to a positive year for equity year overall on 87 percent of 62 years since 1950.

So do we have a fiscal green light stateside for global investors? Or does it just lead us all to another precipice in two months time? Well, markets seem to have voted loudly for the former so far. And to the extent that at least some bi-partisan progress reduces the risk of policy accident and renewed recession, then that's justified. And Wall St's relief went global and viral, with eurostocks up almost 3% and emerging markets up over 2% on Wednesday. Even the febrile bond markets sat up and took notice, with core US and German yields jumping higher while riskier Italian and Spanish yields skidded to their lowest in several months.

from Global Investing:

Emerging Policy-the big easing continues

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The big easing continues. A major surprise today from the Bank of Thailand, which cut interest rates by 25 basis points to 2.75 percent.  After repeated indications  from Governor Prasarn Trairatvorakul that policy would stay unchanged for now, few had expected the bank to deliver its first rate cut since January.  But given the decision was not unanimous, it appears that Prasarn was overruled.  As in South Korea last week,  the need to boost domestic demand dictated the BoT's decision. The Thai central bank  noted:

The majority of MPC members deemed that monetary policy easing was warranted to shore up domestic demand in the period ahead and ward off the potential negative impact from the global economy which remained weak and fragile.

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